CFO also talks up importance of used market, claiming 60% take-rate for Project $10

EA's chief financial officer Eric Brown has claimed that digital content, such as downloadable expansions and the controversial Project $10 online system for used games, is vital to the publisher's future.

"We think that used games in America at this point are perhaps 20 per cent of overall business," he told attendees of the Deutsche Bank Securities Inc. Technology Conference in San Francisco yesterday.

Referring to recent NPD reports of an ongoing decline in game sales, he claimed "That's not captured in any statistic. You add back 20 per cent and you probably get a slightly different view of packaged goods."

Brown felt that the $10 Online Pass – requiring second-hand users to fork out extra money for a code necessary to play certain EA titles online – could draw significant money from the used market, which he posited had grown by around five times over the last half-decade.

"The price is $10, which seems to be gaining user acceptance – the acquisitions, the take rates are quite high, well north of 60 per cent on the titles we've seen so far.

"There hasn't been any significant push-back from the consumer, because I think people realise that if you're buying a physical disc and it requires an attachment to someone else's network and servers, people know bandwidth isn't free.

"So the fact that we're diffusing or covering online costs is not viewed to be unreasonable. We're well into this program and there is no consumer backlash."

DLC for recent FIFA games has earned EA $30m

However, he claimed that standard DLC was proving a far bigger earner than the Online Pass. "We don't expect to be able to attach an additional $10 to every used purchaser. What we've had more success with is a digital extension to the core product called Ultimate Team.

"FIFA 10 generated just over $30m in gross DLC sales – so that'd be above and beyond the revenue that we made just selling the physical disc.

"Now that stills represents a single digit uptake on revenue, but if we can take it from single digit to 20 per cent or so of the full franchise in the mid-term, that revenue on the margin is very profitable to us.

"70 or 80 per cent fully loaded net margin digital revenue stream, and so if we bring that well north of $30 million to 60/70 let's say, a lot of that's going to drop to the bottom line."

Arguing that, despite a general decline in units shifted, games in the top 20 were actually selling more, Brown asserted that the online functionality of triple-A titles was leading to enormous revenues.

"Instead of selling one product with a unified $60 price point we see people buying a $60 disc and then bolting on hundreds of dollars of DLC. We're happy to have $500 worth of extra content to sell."

Brown argued that retailers – specifically GameStop in the US – would be instrumental in publishers securing further income from downloadable content.

"There'll generally be half a dozen different pieces of DLC available for a title, and GameStop's in a really good position to explain to the customer what the DLC is, what pack number one and five and four and six provides, because they have a staffing model and a customer service model geared exclusively to games.

"So we view them as a very important current and future market partner for all forms of DLC."

Brown also felt that the PlayStation 3 was becoming a more important platform for publishers than Microsoft's Xbox 360.

"They're actually up about 34 per cent calendar year to date, so PS3 is much stronger than the 360 which is in turn stronger than the Wii."

A complete transcript of Brown's talk, which also covers his thoughts on 3D, Facebook and iPhone vs Android, will appear on GamesIndustry.biz shortly.

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Let me try and get my head around these statements ... FIFA 10 - a game I think we can assume sells a good 6 to 8 million copies (?) - still generates less than $30 million in revenue for EA?! Even going in with a low estimate (say 5 million sales), that's less than $6 profit per unit, on a game which costs $60 or £40. I know they have licencing costs and everything, but those figures don't seem right for a series which is considered EA Sports' second biggest franchise.

If you read carefully Mr Brown explains that DLC revenue "Now that stills represents a single digit uptake on revenue,..." meaning that $30MUSD is less than 10% of the revenues. FIFA is, of course, generating hundreds of millions yearly to EA.

I think that the absolute numbers are pretty significant especially when you that that this revenue stream wasn't available only a few years back.

I realise he's saying it's the DLC that is generating over $30 million USD, but it's the statement "so that'd be above and beyond the revenue that we made just selling the physical disc" that confused me. I think his statements are a little conflicting, but having re-read it, Ilari has made it clearer for me.

It seems that EA is slowly discovering the longtail potential of the digital business. As Brown states, instead of making a one time sale of $60 people are "bolting on hundreds of dollars of DLC." Lets see what happens if the games are really starting to be designed around this concept from scratch.

As a gamer myself i have a real problem with this statement :
"Instead of selling one product with a unified $60 price point we see people buying a $60 disc and then bolting on hundreds of dollars of DLC. We're happy to have $500 worth of extra content to sell."
Especially since i do not believe EA is "above and beyond" cutting content from the games to sell it separately as DLC as Dragon Age 2 is believed to have been the case.

Still from a pure economic point of view ... $30m in gross DLC sales is great. IF you really can generate aditional content after releasing a polished product it's really good business to get these numbers.

Sadly Radu, I think all publishers are learning that removing content from a game can later be sold back to consumers as DLC can be quite productive, as we have recently seen with Mafia II for instance; where the open world only really becomes relevant once the DLC has been purchased.

I don't mind developers or publishers offering content months after a game's release if it really builds on the experience, but I think we're going to see more and more of single-player games hampered by publishers removing content to charge back as DLC, as well as minor additions only being available via microtransactions.

Edited 1 times. Last edit by Terence Gage on 15th September 2010 3:17pm

Good grief, has EA just landed its boat on the shores of Kotickland? This revelation is hardly new, is it? Activision has proven the success of DLC time and again, first with CoD4 and more so with World At War and now Modern Warfare 2. In fact, they've even managed to sell people things they may already have owned in previous games (witness the 'refreshed' CoD4 maps in MW2 DLC).

Personally, I cautiously welcome this news and approach; but it needs to be expertly balanced to provide initial value to the buyer and then long-term value for both buyer and seller. I would hate to see companies releasing half baked games only to prop them up with DLC further down the line, but I suspect that we will, and that those firms will quickly learn that it doesn't work.

Edited 1 times. Last edit by David Rider on 15th September 2010 3:28pm

Economically noone can argue with EA. DLC is just a gold mine being mined. Personally though, the fact that we are practically returning to a shareware model with initial cost (and to be fair more initial value than a demo) is disturbing. As a gamer, I don't want to purchase every little piece separately, it just feels wrong. Maybe I am already getting too old.

What could be a benefit of this model is the fact, that once the initial price gets lowered to achieve a greater market share (in the way some console systems work), bad titles will go for only a small amount of money and fail because they won't generate DLC sales. On the other hand, the good titles will generate vast amounts of revenue from an even larger audience. This takes some of the "risk" out of buying games as demos have become more or less obsolete over the years, yet only a small group of core gamers is really well informed.

The negative impact would be a greater risk for the publishers as bad sales had an even worse impact than today. Only the strong franchises would survive at the price of innovation. This could result in "Arcade" fashioned tryouts for new IP, a kind of iteration I personally like very much.

Overall, every side gets a fair deal. Paying 60$ for a bad game and just selling it again with a loss is not fair to the consumer. Paying 60$ for a game you get hundreds of hours of joy out of is just too good a deal. The fact that we got used to it over decades does not change that.

Edited 1 times. Last edit by Philipp Nassau on 15th September 2010 3:55pm

Again with the disclaimer that the following is my own opinion, not necessarily that of EA...

The great thing about DLC is that it means that stuff that would have never made it into a game can be added in later, and let me add immediately that I am NOT talking about cutting stuff in order to sell it later.

Criterion showed very well with Burnout Paradise how you can keep a game fresh by adding more content at a steady rate, new cars, new areas to explore etc, none of which would have been possible previously. This was partly done by looking at telemetry and garnering feedback from the community to find out what they like and give them more of it. You can't do that before a game ships.

At the risk of sounding like a "company man" John R has stated repeatedly since he came back the importance of quality and innovation, and using the internet as a medium for improving our games by adding value after ship and now people are starting to see the fruits of that labour.

Creating the infrastructure to deliver that kind of content in a reliable and robust manner is not something that happens overnight but it's more important to get it right than rush a shoddy service out that will only put players off. FIFA Online has been a massive success in Asia, I believe second only to WoW in terms of online popularity in the region, and projects like that and Battlefield Heroes have provided a sound base for us to build on, so this isn't something that EA has just cottoned on to - it's something we've been building on for some time.

I for one am a firm believer in using DLC to enable gamers to build the game they want to play and this is something we're going to see more of in the future.

Am I the only one who read EA's comments about GameStop being a subtle reminder from EA to get back to making developers/publishers money, rather than trying to drown EA's profits in the second hand market?

Excuse me ?? are we talking about the same EA that Peter Moore was talking about few month ago in June:

"Whilst I'm not sure they're angry, they absolutely look at what's going on in the marketplace and understand totally what it is we're doing. One thing I have to do, and it's my job, and my development team's job, and my marketing team's job, is make you not want to trade the game in."

Talk about putting your foot in your mouth...lol (I hope that's the right english expression...)

Maybe have a new look at your job description...

Edited 1 times. Last edit by Stephane Belanger on 16th September 2010 4:30am

@ Stephen, whilst I agree in principle with what you say, there will always be gamers and critics who immediately assume that unscrupulous publishers will use this as a means to cut content from an original IP launch and add it as paid-for content down the road.

Personally I welcome the chance to continue playing a game I love for even longer, thanks to DLC. And most games these days just don't have enough, quality DLC or a long enough play time. Re-worked map packs from previous games, for example, shouldn't be put out at a premium price point. There should be a price scale. Once console games begin to be treated this way, the possibility of worthwhile micro transactions becomes more real.

@ David
It's a very very difficult balance to be made here. And myself i do not condone people blaming EA without proper arguments.

While DLC can prolong a game's life with new content, there is a direction that DLC selling companies tend to kill as a competitor and that more than offsets the advantages DLC brings for the consume in my opinion.

I am talking of course about user created mods. Not much support for this from EA is there? I wonder why :D.